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GENERAL Outsourcing to developing countries is a buzz-word and many companies are triggered to outsource activities to specialized companies and/or low-cost countries. If executed well outsourcing activities can be worthwhile and your company can become more profitable. However there are also many examples where outsourcing activities have been a failure and resulted in high losses, even bankruptcy.
BA2C Europe can assist your organization to define which activities could be outsourced or should be insourced. |
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BA2C Europe Lange Poten 29 2511 CM The Hague The Netherlands Email: info@ba2c.com Phone: +31 70 360 50 80 Cel: +31 6 483 53 263 Internet: www.ba2c.com
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MAIN CHARACTERISTICS OF OUTSOURCING - Activities that were executed in-house are transferred to a third party; - Company sources (in some case including employees) are transferred to a third party; - During a long time (contract duration) there will be an intensive relationship between outsourcing parties involved; - While transferring the activity to a third party the company faces a new cost and risk profile
Outsourcing can be partial or turn-key. With turn-key outsourcing the responsibility of the total execution (including co-ordination) is with the third (outsourcing) party. With partial outsourcing part of the activity is outsourced while the co-ordination of the activities remains the responsibility of the client company. In both situations it is very important to have a clear understanding of who is doing what activity, who is responsible for what activity and service/quality levels agreed upon. |
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ADVANTAGES OF OUTSOURCING - Availability of finance and management focus on companies key activities; - Optimal usage of knowledge, sources, and experience of third party; - Flexibility, differences of workload are the responsibility of third party; - More insight/more clear primary processes in the company; - View from/input of third independent party that might improve the client company. DISADVANTAGES OF OUTSOURCING - Dependency of third parties; - Cultural differences between client and third party; - Continuous control of the supplier relationship is required; - Communication and organization problems between the outsourcing and client parties; - Risk is lost of confidential and strategic information; - Depending of the power relationship between parties it might be difficult to deal with bonuses and penalties. |
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MAIN REASONS FOR OUTSOURCING - Minimizing control and overhead cost; - Focus on key-activities; - Availability of world-class capacity and experience of third party; - Availability of (financial) sources for other company purposes; - Availability of sources of third party; - Speeding-up of re-engineering advantages; - Reducing risk; - Financial support from third party. |
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TYPICAL OUTSOURCING PROCESS
Strategic Phase Evaluation and investigation if, why and what activities can and should be outsourced (or insourced). Key drivers in this process are QUALITY, TIME and COSTS. The competence and cost of potential outsourcing partners will be assessed and evaluated against pre-defined evaluation criteria. An outsourcing partner will be selected and contract negotiations start. Transition Phase Contracts between the company and outsourcing partners will be signed and activities will be transferred to the outsourcing partner: Some aspects that should be taken care of in the contracts are: - Activities and volume of activities to be executed; - Conditions of the contract; - Service Level Agreements; - Prices, rates, bonus/males structure; - Continuation process after termination of the contract; - Dispute coordination, organization & resolution; - Communication and reporting scheme; - Management and control of the activity. Operations Phase Relationship maintenance and contract termination. During the contract the relationship between client and supplier should be maintained in order to make the outsourcing a success. Good working relations are a necessity to benefit from the outsourcing relationship. Therefore it is important that both parties are aware of the outsourcing objectives of client and outsourcing parties, implement good communication procedures, respect each other and gain trust between parties. Contract Termination After the contract is finished/terminated it is important that the both the client and outsourcing parties can continue independently without each other. Therefore during contract negotiations the termination of the contract including the disentanglement of the processes should be clearly defined. If this is not taken care of both client and outsourcing parties risk lots of problems and costs and a discontinuation of activities, legal problems etcetera after contract termination. |
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OUTSOURCING & INSOURCING SERVICE OFFERINGS - Analysis/evaluation regarding your position and strength towards your counterparts (clients/suppliers); - Evaluation the benefits of efficient outsourcing processes; - Execute a feasibility study to outsource/insource activities to other companies; - Develop, arrange and implement new outsourcing and insourcing activities with third parties. |
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